'Base rate has stopped cross subsidy'

Public sector lender Allahabad Bank has said the newly introduced system of base rate had effectively checked cross subsidy in credit rates under the benchmark prime lending rate (BPLR) regime.

“Cross subsidy generally worked in favour of large borrowers, while the micro, small and medium enterprises (MSMEs) felt their rates stood comparatively steeper,” Allahabad Bank executive director M R Nayak told Business Standard.

He said base rate had not only boosted the profitability of banks, but retail and MSME borrowers were also benefited.

The base rate regime replaced BPLR from July 1. It is acknowledged as a more transparent system of ascertaining the cost of funds.

According to the Reserve Bank of India (RBI), base rate is the minimum rate for all commercial loans below which the banks can not lend.

Earlier, most advances were made at the sub-BPLR levels. Therefore a need was felt to shift to a more transparent system of ascertaining credit rates.

Since base rate is fixed on the cost of funds, any change in interest rate is automatically passed on to existing customers.

Nayak said the existing BPLR customers were also opting for base rate.

Commenting on the recent hike in key policy rates, he said there was enough liquidity in the banking system and no dearth of credit for the industry.

“There is good availability of credit for MSMEs and the agriculture sector,” he said, adding the bank’s MSME lending was between 11.5-12 per cent.

The bank has 13 lead districts in UP and plans to launch 16 mobile banking vans with ATM facility in the current financial year.

Allahabad Bank has over 2,300 branches, with total business worth over Rs 1,96,000 crore.